Online shoppers appear to be getting around sales taxes similar to one passed in West Virginia last year that target large retailers like Amazon.com, according to a new study from researchers at Ohio State University.
In a new study on the “Amazon Tax,” researchers say Amazon appears to suffer while other online stores benefit and brick-and-mortar stores — the very stores that backed the tax — are seeing only marginal benefits.
States have been pushing to tax online sales for years, but have hit a stumbling block at the federal level.
State Deputy Revenue Secretary Mark Muchow said the state could collect anywhere between $50 to $100 million in additional tax revenue if it could tax online, telephone and mail-order sales.
Under current federal laws, states can only require retailers to collect taxes on online sales only if the store has a physical presence in the state. Under many state laws, that only meant companies like Walmart, Target and Best Buy — the ones that actually had brick-and-mortar stores in the states — were required to collect online taxes.
But many states began passing laws that applied the tax to companies that had other office and warehousing locations, though not retail sites, in-state to collect taxes as well. West Virginia joined this movement last year.
The main target of this tax is Amazon, the largest online retailer.
Amazon operates a large distribution center outside of Huntington. While the new West Virginia law could apply to other businesses as well, the bulk of additional revenue from the change — estimated to be between $7 to $10 million a year — should come from the popular online retailer.
Business groups supported the change, having long said the tax-free status of the Internet had been siphoning away business from brick-and-mortar shops for years.
But many consumers appear to be adapting to the change.
The Ohio State study surveyed spending habits of more than 245,000 households that spent at least $100 on Amazon during 2012 and 2013. About a third of those surveyed lived in five states — California, New Jersey, Pennsylvania, Texas and Virginia — that implemented the “Amazon Tax” during that time period.
The study found in the states that passed the tax, consumers spent about 10 percent less than those in states without the tax.
The difference was even larger the more people spent. On big-ticket purchases more than $300, Amazon sales fell by 24 percent in the states with the tax.
The study found brick-and-mortar stores got a small bump, about 2 percent, while other online retailers saw a 20 percent increase in household spending.
Ironically, the biggest sales increase went not to other websites, but merchants using Amazon’s Marketplace service. They saw a 61-percent increase in big-ticket purchases once the tax went into place. Using that method, states didn’t collect the tax but Amazon got the benefit through the fees it charges on each Marketplace transaction.
“The results suggest that broader and more consistently applied sales tax collection of online purchases, such as those suggested by the Marketplace Fairness Act of 2013, will lead to an increase in the online sales of national retailers while only modestly increasing local brick-and-mortar revenues,” the study concluded.
The Marketplace Fairness Act, considered in Congress last year, would have given states the ability to directly collect taxes from online sales to in-state consumers, regardless of where the retailer is located. With still cash-strapped state governments, it will be interesting to see if the Ohio State study reignites debate over the plan.